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Mon 13 Jun 2011 01:59 PM

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Mideast borrowers tap loan markets after Arab Spring

Dubai’s Investment Corp among firms leading 43% rise in lending to Middle East firms

Mideast borrowers tap loan markets after Arab Spring
Qatari investor stock exchange

Sabic Capital, Commercial Bank of Dubai, and Investment Corp
of Dubai are leading a 43 percent increase in lending to Middle Eastern
companies as political unrest in the region wanes.

Middle Eastern borrowers are in the market with $5.5bn of
loans, which if completed would bring second-quarter volume to $11.5bn,
according to data compiled by Bloomberg. That compares with $8bn raised in the
first quarter.

Companies are returning to the market after the so-called Arab
Spring toppled autocratic leaders in Egypt and Tunisia. The cost of insuring
Egyptian debt against default tumbled to the lowest since Tunisian ruler Zine
El Abidine Ben Ali fled following weeks of protests against unemployment,
corruption and dictatorship in January. President Hosni Mubarak of Egypt
resigned less than a month later.

“At the start of the year there was a lot of uncertainty
about the Arab Spring and the popular uprisings in the Middle East,” Dirk
Hentschel, head of distribution and loan syndication for Europe, the Middle
East and Africa at WestLB in London. “That has improved a bit now and we’re
seeing an increasing pipeline of deals.”

Dubai’s Investment Corp., the government’s main holding
company, is in talks with banks to refinance a $4bn term loan with a new $2.8bn
facility. Even after the tensions have subsided, the interest on the deal of
350 basis points over the London interbank offered rate is higher than the
average 215 basis-point margin for Dubai loans over the past year.

Borrowing costs have been elevated ever since state-owned
Dubai World was forced to restructure about $25bn of debt in 2009.

“Dubai has emerged as a safe-haven,” said Raza Agha, Middle
East and Africa economist at Royal Bank of Scotland Group in London. “You can
see that many of the deals coming out involve them and Saudi Arabia, both of
which are perceived to be relatively less vulnerable to the situation in Middle
East and North Africa.”

A basis point is 0.01 percentage point. Libor is the rate
banks charge to lend to each other.

Commercial Bank of Dubai, which is 20 percent-owned by
Dubai’s government, hired Commerzbank AG to arrange a new $400m loan to
refinance a facility expiring this year.

Sabic Capital, a unit of government-owned Saudi Basic
Industries Corp., this month appointed five banks to arrange a $2bn revolving-credit
facility paying 40 basis points over Libor.

State-owned Saudi Arabian Oil Co., the last Saudi borrower
to raise funds in the syndicated loan market, paid interest margins of 13 basis
points and 16 basis points over Libor for one-year and five-year credit lines
in November.

Borrowing remains subdued compared with last year, when
banks lent $22bn to Mideast and North African companies in the second quarter.

Cairo-based Egyptian General Petroleum Corp. suspended
negotiations for a new $2bn loan after 18 days of protest forced Mubarak to
resign on February 11. EGPC, which asked banks to submit bids for a five-year
term loan by January 17, abandoned talks with lenders and said a decision would
not be made until calm returns to the region.

Pro-democracy movements continue to face state crackdowns in
Yemen, Bahrain and Syria, and are backed by the United Nations in a civil war
in Libya.

Group of Eight nations said last month they would help the
World Bank and oil-exporting countries Gulf states support democratic
transition in Egypt and Tunisia countries by making at least $40bn available to
their governments through grants and loans. The International Monetary Fund
says the region will need more than $160 billion over the next two years.

“Credit markets were impacted by the turmoil earlier on in
the year, but there is some improvement,” RBS’s Agha said. Egypt’s five-year
credit default swaps slid to 292 basis points last week, the lowest since
January 14.

The rise in credit risk “in the aftermath of the crisis has
reversed, although spreads are not back to pre-crisis levels,” Agha said.

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